Bitcoin Forum

Hi there,

why are exchanges so bad at accounting? It would be easy to display their balances real vs. customer IOUs, or at least, the percentage, to detect theft and reassure customers:

- cold wallets would be stored in a vault; their public keys can be held online so the content of the cold wallets would be known at all times, in realtime.

- what are the hot wallets, numbers in a database? The customer balances definitely are. Even with hundreds of thousands of rows in a table, triggers can be defined to calculate the sums of all holdings relatively fast.

- if the hot wallets are not in a database it would be even easier to write software that fetches the current content of each wallet by an API type interface

So I can't see any reason why a dashboard could not be created which would be enormously useful. In fact such a dashboard could be used to physically separate the entire architecture of an exchange from the network by literally pulling the plug! In the case of Poloniex for example, a deviation of a few percent could be used to trigger an alert to an on-duty person and after a second treshold is met, the plug would be pulled. Then the hackers transactions won't complete (unless he stole un-encrypted private keys of course).

I worked as a systems architect not a coder, so pardon me if that is naive.

What do you think?

Leo

This is why I can't believe the official Mt.Gox story about the lost coins. As you said, it sounds very easy and I can't believe some of the exchanges doesn't do this internally. Speaking about making it public however,  I can think about some issues:

- Even if they never actually do that, they want to keep the window open for silently borrowing client funds for various reasons.
- The solvency ratio (if indeed calculated honestly in real-time) would never show exactly 100% (even if everything is in order, no cheating, no stealing on either sides...) but constantly walk between something like 95 and 105% (just a wild guess example) and even if you make a clean note about that like "+/-5% difference is absolutely normal, no need to panic, and there could be explanation for even higher differences in some random situations", I bet this could easily cause some panic when it moves below 100% and the panic would only push it even lower.
- Why should this increase anybody's trust in an exchange? These numbers can easily be falsified. So, why bother...?

We can now add Vircurex to the mix..

https://vircurex.com/welcome/ann_reserved.html

https://bitcointalk.org/index.php?topic=528184.0

Being good in maths, crypto and/or programming does not make you a good accountant.

Double entry book keeping has been around since a few hundred years, there's a reason people use it. It is not the most intuitive way of storing your data in a ledger book though, so lots of people seem to rather rely on simpler methods or "I can query my database anyways, if I need balances" - which they probably don't do regularly.

This isn't even accounting. It's just bookkeeping.

Real money-handling systems have "reconcilation" (https://en.wikipedia.org/wiki/Bank_reconciliation), where, usually daily, there's a break and the day's journal of transactions and all account balances are captured. Then they're checked against each other and external sources (i.e. does your internal calculation of what's in bank accounts and storage match the bank's numbers). They won't always match, because of outstanding transactions, all of which must be accounted for. Discrepancies that can't be accounted for indicate trouble.

Most real businesses that handle money do this every day. If they've been ripped off, they know quickly, which narrows down the number of suspects and limits losses. Mt. Gox never did it.

This stuff isn't rocket science. Your local supermarket manager is very familiar with this process.  A big supermarket has many checkout counters, many clerks, cash all over the place, credit card transactions of several kinds, merchandise going in and out, and a very small markup. Probably a higher transaction rate than Mt. Gox. Yet if money goes missing in a supermarket, it will be noticed within hours, and who took it will probably be known, and shown to cops if necessary, the same day.

There's a reason that most Bitcoin exchanges fail, and it's cluelessness, not technology.

This is what I absolutely can't believe.
Were they lazy and did this much less often with much higher tolerance than they should have done it? Very probable.
Did they fail to do this for so long and/or with so high tolerance that it allowed loosing up to 100k BTC? Highly doubtful. 850k BTC? -> I don't believe it!

Real time, triple entry accounting is not trivial to implement, but it's coming.

^^^^^ This.